French, Italian Bonds Boosted by Dutch Defeat for Populists

French and Italian bonds jumped as Dutch Prime Minister Mark Rutte’s Liberals easily beat off an election challenge from the Freedom Party of Geert Wilders, boosting optimism that a rising tide of populism across the euro region can be stemmed.

French bonds gained a fourth day, with 10-year yields dropping below 1 percent for the first time in a week. The Dutch vote drew unusual global scrutiny as it came before next month’s presidential election in France where anti-euro candidate Marine Le Pen has vowed to take the nation out of the single currency. The probability of a Le Pen win, implied from betting odds, fell by around 1 percentage point to 29.3 percent following the Dutch result. European bonds were also boosted after the Federal Reserve raised interest rates on Wednesday, without accelerating the timeline for future tightening.

With Dutch financial markets remaining relatively calm in the run-up to the election, analysts were predicting that a greater reaction would be seen in French securities. That was borne out on Thursday, with Italian bonds, which have become more correlated to French debt, also benefiting from the result.